NAFTA negotiations to soon begin; agri sector officials warn of economic harm

A coalition of 85 agriculture-related organizations have drafted a letter warning U.S. Secretary of Commerce Wilbur Ross about the negative impacts of withdrawing from North American Free Trade Agreement (NAFTA).

A new round of NAFTA negotiations is set to begin Nov. 17 in Mexico. President Donald Trump has threatened to withdraw from the agreement, one he has termed as “one of the worst deals ever made.” At a panel discussion in October, Ross dismissed agriculture sector concerns if the 23-year-old agreement is terminated. He said a withdrawal and the negative impacts to food producers are an “empty threat.”

“As far as I can tell there is not a world oversupply of agricultural products … unless countries are going to be prepared to have their people go hungry or change their diets. I think it’s more of a threat to try to frighten the agricultural community,” he said.

According to a study by ImpactECON, if Canada, Mexico, and the United States return to “most favored nation” (MFN) tariff rates upon any withdrawal from NAFTA, the negative impact on the United States will outweigh any benefits from higher U.S. tariffs, including a net loss of 256,000 U.S. jobs, a net loss of at least 50,000 jobs in the U.S. food and agriculture industry, and a drop in GDP of $13 billion from the farm sector alone. NAFTA withdrawal would also disrupt critical industry supply chains, close markets, eliminate jobs, and increase prices for the basic needs of American consumers.

The coalition admitted some sectors have been adversely impacted by NAFTA, but the farming community has been a benefactor of the deal. Coalition members represent 21 million jobs nationwide or 20% of the U.S. economy. In 2015, the U.S. held a 65% market share of the agricultural products exchanged under the agreement, and in 2016 more than $43 billion worth of food was exported to those countries. American food exports to Canada and Mexico have increased by 450% since the deal was adopted in 1994. Input costs have been reduced as a result of the agreement, and traditional trade barriers were eliminated.

Among the major Arkansas-related sectors that could impacted include rice, corn, soybeans, cotton, and poultry. Arkansas is the leading rice producer in the country, accounting for half of the country’s production. U.S. rice competes in a global market that is distorted by subsidies and government import controls, which artificially increase world rice supplies and restrict U.S. markets. NAFTA has helped to curb those issues. Mexico and Canada account for nearly 30% of all U.S. rice exports. Exiting NAFTA could open these markets to competitors from Asia and Brazil as world rice stocks are rising.

The state’s top crop is soybeans, and the U.S. exports $3 billion in soybeans each year to NAFTA partners. South America soybean growers have been competing with U.S. growers for several years, and a change in policy could force Mexico and Canada to look at other options.

The Natural State is a top poultry producing state. In 2016, U.S. poultry exports were 7.95 billion pounds, over 16% of total production. Canada was the second largest market for the chicken industry and in the top five in turkeys. Mexico proved the largest single customer for U.S. poultry exports in 2016. Almost 70% of U.S. turkey exports go to Mexico, and it imports 23.5% of all U.S. poultry exports, while Canada received more than 5% of U.S. poultry exports. Mexico imports 1 million bales of cotton each year.

Mexico also ranks second among U.S. cotton textile and apparel export customers, buying 15% of total U.S. cotton textile and apparel exports.

The U.S. exported $3.2 billion worth of corn to Mexico and Canada last year, supporting 25,000 sector jobs. Withdrawal would cause U.S. production to fall by an average of 150 million bushels annually, erasing $800 million in value and increasing the need for farm program payments by $1.2 billion.

Over $1 billion a year in U.S. dairy products are shipped to Mexico. If Mexico reverts to MFN status, applied tariffs would range from 20 to 60% on cheese and up to 45% for skim milk powder, undermining the largest market by far for U.S. dairy exports at a time when Mexico is preparing to finalize negotiations with the EU, the world’s largest dairy exporter and a region keen to act as a substitute for U.S. dairy, the letter states.

Oats, beef, fresh and frozen vegetables, pet food, feed, alcohol, and other sectors could also be negatively impacted. Timing could be problematic for farmers if the deal is nixed. World grain markets are currently oversupplied, the most since the 1980s, according to estimates. European competitors, and countries such as Brazil and Argentina are launching aggressive efforts to capture larger shares of these agricultural markets. Farm incomes in the U.S. have declined for the last five years.

“Notice of withdrawal from NAFTA would result in substantial harm to the U.S. economy generally and food and agriculture producers, in particular. While it has been asserted that negotiations could be completed and a new agreement approved subsequent to issuance of notice of withdrawal, but prior to actual withdrawal, that observation gravely underestimates the business complexity and contracting periods involved,” the letter states. “We are sadly confident that issuance of a notice of withdrawal from NAFTA would trigger a substantial, immediate response in commodity markets as market-specific focus would turn to a scheduled return to trade-prohibitive tariff rates. Contracts would be canceled, sales would be lost, able competitors would rush to seize our export markets, and litigation would abound even before withdrawal would take effect.”

NAFTA may have been beneficial to agricultural commerce, but others argue it has caused wage stagnation and significant job losses in other sectors. Since the agreement’s inception, the U.S. auto industry has lost 350,000 jobs, while the number of auto workers in Mexico ballooned from 120,000 to 550,000 workers, according to the Council on Foreign Relations. Some econometric research shows expanded trade has stifled wages for non-college educated workers. Those workers directly compete for jobs with workers in Mexico who are often paid much lower wages, according to CFR.

At least 5 million U.S. manufacturing jobs have been lost since NAFTA was signed, according to the Economic Policy Institute. Not all those jobs can be directly linked to NAFTA, but a significant number can. Those displaced workers earned on average $40,154, according to a study conducted by the Brookings Institution. Those wage rates plummeted to $32,123 when those workers found new jobs. Wage levels in the U.S. have risen less than 1% during the first 19 years of the agreement, median wage is essentially the same as it was in 1979.